Category : Patent Policy

A workshop Trade Secrets Deep Dive will be held on Friday September 7 in Eindhoven (High Tech Campus). Speakers from private practice and industry (see below) will cover all aspects of trade secrets, by many considered the most important intellectual property asset. Recent developments are the reason to organize this event:

  • The Defend Trade Secrets Act passed in the USA in May 2016
  • The EU Directive on Trade Secrets is enacted by member state on 9 June 2018
  • China explicitly included trade secrets in its 2018 revisions to the Anti Unfair Competition Law.

Furthermore Heads of IP Departments have expressed their wish that there should be an exchange of “best practices” on trade secret management. IPEG therefor has managed to get together excellent speakers from industry as well as legal practice to cover all aspects of trade secret protection.

The Program of the Workshop will be as follows:

Date: Friday 7 September 2018 (13.30 hrs – 17.30 hrs)

Location: High Tech Campus, Eindhoven, Netherlands)


Registration fee: € 295 excl. VAT


13.30-13.55   Arriving of attendees of the Workshop with coffee/tea/welcome drink


14.00 -14.08  Opening remarks by the Chair, Ingrid Baele (Head of IP&S Offices & Operations Philips)  

14.10 -14.30 Donal O’Connell (IPEG consultant, former Head R&D Nokia) on “The power of trade secret metadata

14.30- 14.50 Koen de Winter (partner BakerMcKenzie) on “The Board Ultimatum: Protect and Preserve, The Rising Importance of  Safeguarding Trade Secrets[1]

14.50-15.10  Tjibbe Douma (attorney De Brauw Blackstone Westbroek) on “Trade secret (in) innovation”

15.10- 15.30 Dr. Stephan Wolke (CEO thyssenkrupp Intellectual Property GmbH) and Dr. Claudia Pappas (attorney thyssenkrupp) on “Implementation of trade secret processes and structures at an international engineering conglomerate”

15.30- 15.45 Tea break


15.45-17.30  Panel discussion (see below), chaired by Gijs Weenink, (DebatAcademie)

Panellists/members of the Lower House Debate

Maaike van Velzen (Philips)

Marieke van Gent  (AkzoNobel)

Dietmar Pressner (DSM)

Sarah Sahans (AkzoNobel Coatings)

Dr. Uwe Over (Henkel)

Johan Hulshof (NXP)

Dr. Guno H.K. Tjon (Unilever)

Willem Weenink (ASML)

17.30-18.00   Closing remarks by Workshop Chair, followed by drinks


Download the invitation flyer

Download the full program in PDF

Speakers and panellists from:

[1] a report published by Baker McKenzie in partnership with Euromoney Institutional Investor Thought Leadership, based on a survey of more than 400 executives across five industries — healthcare, financial services, industrials, ICT and consumer goods and retail — examining how the leaders of multinational companies view their trade secrets, who they see as the greatest threats to these secrets and what they do (and don’t do) to protect them.


[2] The panel discussion will be held by means of a so called “Lower House Debate” style debate using “thesis”(“stellingen”). Panel members from various industries are debating these “thesis” with members of the audience. Every thesis will be introduced by a short video or slide. Each subject during the “panel” will be introduced by a short video setting out a particular  “Trade secret” issue. Members of the “panel” are not on a stage but are in the front of the Lower House row. The professional debater/chairman will present a “thesis” that is relevant to the subject and will be shown on the screen. He will first ask industry panellists to react to the “thesis” posed on the screen. All that are in favour or agree sit on one side of the Lower house set-up, those against sit or go to the other side. The chairman will explain to the audience that the idea is that people in the audience sitting behind the panellists move to either the PRO or the CONTRA side of the Lower house set up.



Author: 4 weeks ago

Any business professor will tell you that the value of companies has been shifting markedly from tangible assets, “bricks and mortar”, to intangible assets like intellectual property (IP) in recent years. IP in its various forms is increasingly used as the basis of many business and commercial transactions.  It is fundamental for company valuations (merger, acquisition, bankruptcy); negotiations (selling or licensing); dispute resolution (fair recovery and quantification of damages); fundraising (bank loans and raising capital); assisting in decision making (corporate strategy); and reporting (tax and accounting).

Intangible Assets

An intangible asset is an asset that lacks physical substance and includes patents, copyrights, franchises, goodwill, and trademarks.

The International Accounting Standards Board standard 38 (IAS 38) defines an intangible asset as: “an identifiable non-monetary asset without physical substance.”

IAS 38 specifies the three critical attributes of an intangible asset to be …

  • identifiability
  • control (power to obtain benefits from the asset)
  • future economic benefits (such as revenues or reduced future costs)

IAS 38 contains examples of intangible assets such as customer lists, copyright, patents and franchise agreements.

The Value and Valuation of Trade Secrets

The terms value and valuation and their cognates and compounds are used in a confused and confusing but widespread way in our contemporary culture, not only in economics and philosophy but also and especially in other social sciences and humanities. Their meaning was once relatively clear and their use limited. Value meant the worth of a thing, and valuation meant an estimate of its worth.

This blog will explore the subject of the valuation of one particular form of IP, namely trade secrets.Why trade secrets? Well, IAS 38 clearly indicates that a trade secret is also an example of an intangible asset, so long as it meets the three critical attributes – identifiability, control and future economic benefit. Trade secrets are a very important part of any IP portfolio. It is no exaggeration to say that virtually every business possesses trade secrets, regardless of whether the business is small, medium or large.

Trade secrets are an important, but oftentimes an invisible component of a company’s IP portfolio of assets. However, trade secrets can also be the crown jewels within the portfolio.

Why Conduct a Trade Secret Valuation

Before delving into the details of the valuation of a trade secret, it is important to appreciate that the rationale for conducting such a valuation may vary.

  • For management information purposes
  • For strategic planning
  • For value reporting
  • For accounting purposes
  • For liquidation reasons
  • To support a legal transaction
  • For licensing
  • For litigation support
  • For dispute resolution
  • For taxation planning and compliance
  • For fundraising purposes

Transfer Pricing

Throughout this blog, one particular valuation rationale will be analyzed, namely transfer pricing. Transfer pricing is probably the most important issue in international corporate taxation. In taxation and accounting, transfer pricing refers to the rules and methods for pricing transactions between enterprises under common ownership or control.

A transfer price is the price at which members of a group transact with each other, such as the trade of goods and services between group members..

Transfer pricing also comes into play when the transaction between group members involves intangible assets and IP like trade secrets. In other words, transfer pricing is not limited to just tangible assets. Due to the rather broad the definition of intangibles for transfer pricing established by the OECD, the scope of the valuation as well as the resulting value will often differ from analyses performed for accounting and management information purposes; as stated in the OECD Guidelines (paragraph 6.7):

Intangibles that are important to consider for transfer pricing purposes are not always recognized as intangible assets for accounting purposes. For example, costs associated with developing intangibles internally through expenditures such as research and development and advertising are sometimes expensed rather than capitalised for accounting purposes and the intangibles resulting from such expenditures therefore are not always reflected on the balance sheet. Such intangibles may nevertheless be used to generate significant economic value and may need to be considered for transfer pricing purposes”.

With trade secrets being a prominent example of Intangibles that are not being reflected on the balance sheet, but which may nevertheless generate significant economic value, it is evident that trade secrets cannot be disregarded for transfer pricing purposes. Trade secrets are explicitly recognized within the OECD Guidelines in Chapter VI Section A.4.2.

Tax practitioners which fail to identify relevant trade secrets as well as to develop a clear understanding of the attributable economic value face a high degree of uncertainty in respect to the question whether their transfer prices reflect an arm’s length compensation for the intangibles contributed by individual group members. Hence, with the growing importance of intangibles as the core value drivers within highly integrated value chains, understanding how to properly cope with intangibles and IP like trade secrets in transfer pricing is one of the key challenges faced by tax practitioners. Conducting a thorough stock-tracking analysis and compiling a respective analysis will be invaluable first steps to reduce uncertainty and risks.

The Requirements for Trade Secret Valuation

Conducting an IP valuation exercise requires transparent inputs, reliable and sufficient data, and objectivity of the person conducting the valuation. This applies also if the IP in question is a trade secret. Ideally, the valuation of the trade secret should have …

  • Transparency – Qualification of the valuation inputs, assumptions, risks, sensitivity analysis, and disclosure
  • Validity – Valid inputs and assumptions as of the value date.
  • Reliability – If a valuation is repeated, it should reliably give a comparable and reconcilable result
  • Sufficiency – The valuations should be based on sufficient data and analysis to form a reliable conclusion
  • Objectivity – The appraiser should conduct the valuation free from any form of biased judgment
  • Various financial and legal parameters – When performing a monetary IP valuation, various financial and legal parameters should be taken into account

From a transfer pricing perspective observing and documenting the above requirements will greatly contribute to the defensibility of the valuation. Tax practitioners need to be aware of in this context that tax authorities are extremely sensitive about the effects of information asymmetries. The basic assumption here, whether justified or not, is that tax authorities are generally at a disadvantage when assessing transactions involving intangibles. As a result, they will frequently second guess the valuations during tax audits. The recent discussion in the context of the BEPS point towards an increased (even reversed) burden of proof for taxpayers, as the OECD explicitly stated in the implementation guidance for hard-to-value-intangibles (BEPS Action 8, Public Discussion Draft, 23. May 2017) that:

“This guidance protects tax administrations from the negative effects of information asymmetry by ensuring that tax administrations can consider ex post outcomes as presumptive evidence about the appropriateness of the ex ante pricing arrangements. At the same time, the taxpayer has the possibility to rebut such presumptive evidence by demonstrating the reliability of the information supporting the pricing methodology adopted at the time the controlled transaction took place”.

Without observing the above requirements for the valuation process, rebutting presumptive evidence (hindsight) presented by tax authorities will be challenging indeed.

Trade Secret Valuation Techniques

Let’s now delve into the details. There are a number of techniques / methods in use when conducting IP valuation exercises. Here are some of the quantitative IP valuation methodologies used.

Income approach

The income approach measures the value of the IP by reference to the present value of the economic benefits expected to be received over the remaining life of the IP

Market approach

The market approach measures value based on what other purchasers in the market have paid for assets that can be considered reasonably similar to those being valued

Cost approach

The cost approach measures the value of a IP based on the cost invested in building the IP, or its replacement or reproduction cost

Discounted cash flow

DCF analyses use future free cash flow projections and discounts them, using a required annual rate, to arrive at present value estimates.

Typically discounted cash flow is the methodology used when conducting a trade secret valuation exercise. Discounted cash flow analysis is a method of valuing an asset using the concept of the time value of money. All future cash flows associated with the asset are estimated and discounted by using cost of capital to give their present values.

When conduction a discounted cash flow analysis in the context of transfer pricing (i.e. a sale of intangible assets and / or the relocation of corresponding functions), one should be aware that the valuation should consider the perspective of the buyer as well as the perspective of the seller (i.e. at arm’s length the buyer will generally anticipate to earn higher profits from the use of the intangibles than the seller and the parties will negotiate a price within a corresponding bid-ask range).


Here are some of the rational economic considerations when attempting to calculate the valuation of a trade secret. They may be broken down into four ‘buckets – costs, timing, benefits and risks. These are the inputs as such which feed into the discounted cash flow valuation calculation.

Associated Costs

Investment outlays. The economic outlay to create or develop the trade secret. This may include such details as the time taken to develop the trade secret, time taken to test it, labour costs involved, investment in physical capital (e.g., equipment, property, etc.) plus other related expenses.

Protection outlays: The economic outlay to provide reasonable protection to the trade secret, and may include administrative, legal and technical protection mechanisms deployed to protect the trade secret over time.

Associated Timing

Protection period: The anticipated protection period as impacted by the likelihood of a competitor discovering through reverse engineering or other proper means. Of course, the trade secret owner himself may decide to declassify the trade secret after a period of time for various reasons. Alternatives: The existence or expected development of acceptable alternatives or substitutes that could diminish or eliminate competitive advantages provided by the trade secret.

Associated Benefits

Investment returns. The economic benefits expected as a result of the trade-secret’s use in a product or service, such as greater sales, price premiums, or cost reduction. Internal capabilities: The benefits gained by the organisation possessing the trade secret in terms of its internal capabilities, and/or improved efficiency and effectiveness.

License or sale:  a trade-secret owner might also consider licensing or selling a trade secret—whether as part of a specific IP transaction or as part of a larger business transaction.

Prior User Rights: Having a trade secret in use prior to another entity filing a patent application gives the trade secret owner prior user rights. The trade secret owner does not require a license to continue to use the patent belonging to that other entity.

Recovery of damages: While typically not a preferred way of generating a ROI on a trade secret, litigation involving misappropriation can also provide investment returns through the recovery of damages.

Associated risks

The risk that the company themselves fails to treat the information as a trade secret, by not controlling access and not putting reasonable protection mechanisms in place. The risk that the trade secret is misappropriated by say a disgruntled employee, a former executive, a collaboration partner, a competitor or a hacker. The risk that an independent party either patents or publishes the information thereby putting the information into the public domain.

All of these economic considerations are also relevant for transfer pricing professionals. Having access to respective information will greatly enhance the reliability (defensibility) of respective calculations.

Trade Secret Valuation Report

A proper and professional trade secret valuation report should ideally contain the following sections.

  • position and status of the appraiser
  • purpose of the IP valuation
  • identification of the subject IP
  • details of any IP-related assets valued
  • addressed audience/addressees
  • premise of the IP value
  • approach and methods used
  • valuation date
  • value date
  • data sources used
  • key assumptions and sensitivities
  • limitations

When compiling the report, it is highly recommended to keep the Corporate Tax Department / Function and/or the external Accountancy & Tax Firm in the loop, as the contents will also be of immediate value for transfer pricing purposes. Not only does an overview (list) of the intangibles constitute a compulsory part of the required transfer pricing documentation, the so-called Master File (see OECD Guidelines, paragraph 5.19), it will also be an invaluable source of information to verify whether the trade secrets have been adequately taken into account in the context of intercompany transactions.

Final thoughts

Trade secret valuation is a challenging task that frequently fails to demonstrate transparency in terms of how it reaches conclusions on asset value. In general, trade secret valuation requires thorough analysis and deliberation, the application of complex methodologies, and good levels of business judgement.

We trust that this overview of the valuation of trade secrets is of interest and of value.

Donal O’Connell & Oliver Treidler

Author: 4 months ago

Recently the Dutch financial newspaper “Het Financiele Dagblad” spent an article (” (“spin-offs rely on deep pockets University holding“) on how (un)successful Dutch universities have been with their academic spin-offs, how many have been able to actually provide enough starting capital to give the spin-off a head start? How many universities only provide advice, but no capital? Some universities have set up special Holding companies to hold the shares (or part of it) in the spin-off, provide licenses under the academic inventions in patents necessary to operate the spin-off or simple act as a business advisory to the newly set up companies that come out of academic research. Only a handful of them have been able to gather enough funds to also financially support the academic spin-offs. The University of Leiden has “Libertatis Ergo Holding”, VU University in Amsterdam has “Ooievaar Holding”, (Technical) University Twente operates their ” Technopolis Twente” holding company. According to the finding of Het Financiele Dagblad the differences between the various holdings are substantial, some of them only “hold” legal title to a part of the shareholding in the spin-off, some have financial buffers enabling them to provide starting capital. Some universities have no holding or other form of formal participation in spin-offs at all, like the University of Tilburg.

Two universities (AMC -the medical group of the University of Amsterdam and Utrecht University have considerable financial holding s of approx. 44 million euros (2014), partly due to the sales of biotech company ChromaGenics to Crucell and the sale of software maker Euvision to Qualcomm in the US. Other sources of income are license income under the intellectual property on the inventions done under the academic umbrella.

Two universities have chosen not to directly participate financially in their spin-offs, but rather invests in third party Investment Funds managed by external, independent management. There are no clear rules on when and how universities can support their spin-offs.

On the same page in Het Financiele Dagblad reference is made to the situation in the United Kingdom. An example is Imperial College who set up a company “Imperial Innovations”. Other UK universities also work together with this entity. A rather odd quote by the Vice Chairman of Leiden Universiteit (Willem te Beest) appeared He was being quoted as saying:

The IPO is the dumbest thing Imperial College ever did, as they lost all their patents in one strike

We asked Imperial College and Imperial Innovations for their comments. Here is what they have to say:

“Please allow me to correct any misunderstandings. Imperial College has not lost all of its patents. For over 20 years it has assigned its patents to a separate professional licensing company (Imperial Innovations: IVO) in return for a share of future proceeds. This arrangement did not change as a result of the IPO. The only change is that Imperial College no longer has a controlling equity stake in IVO, and instead has a much tighter contractual relationship to ensure that it receives the technology transfer services it requires in a high quality manner. The IPO has allowed Imperial to gain access to a balance sheet fund of over £0.5 billion GBP of patient capital to invest in university spin-outs, and to gift its endowment fund with a multi-million pound sum in the form of cash and shares held in IVO (it owns 17% of a company currently valued at £660m GBP). Imperial College continues to retain a seat on the board of Imperial Innovations and enjoys a close working relationship with the technology transfer unit of IVO.

As such, whilst the model adopted by Imperial College may not be suitable for all institutions, to call it ‘dumb’ seems to not reflect the results achieved to date.

Imperial College London has operated with a separate holding company for its intellectual property assets for many years – Imperial Innovations Limited. This is the prevalent UK model for larger universities. UK universities are charities and cannot trade, hence they generally place their IP assets and spin-out shareholdings into a separate vehicle. This allows the company vehicle to hire a specialized and professional staff dedicated to translating the university’s IP assets into societal impact and commercial gain. The university routinely transfers ownership of its IP assets to Imperial Innovations in return for a significant share of future revenues from licensing and/or equity realizations.

In 2006, due to the lack of venture capital to invest in early-stage university start-ups and to scale them up, Imperial took the decision to list Imperial Innovations on the London Stock Exchange (AIM: IVO). This allowed the company to raise a substantial amount of capital to invest in new spin-outs. Since 2006 IVO has invested £236m GBP into UK university spin-outs and the portfolio has raised a total of £1.3billion GBP. Not only has Imperial realized a very substantial sum in cash, equity and cost-savings since then, but it retains the full services of a professional TTO and it (and its academic inventors) continue to receive a share of future proceeds from any patents filed or spin-outs formed. More importantly though, it has access to venture funding spanning the very earliest stages of IP development (e.g. £25k GBP) through to investments such as the £25.5m GBP invested by the company into Circassia, an Imperial spin-out now listed on the London Stock Exchange. This long term funding from IVO’s balance sheet represents a stable longitudinal source of finance for university spin-outs which often require gestation periods of 8-15 years to an exit event(I.e. much longer than the typical 6 year investment periods of most 10 year venture funds).

Imperial Innovations is unusual in combining a technology transfer model alongside an investment model. It works for Imperial College, but others have taken a different path. E.g. Some UK universities have partnered with IP Group and Mercia (which are also listed patient capital balance sheet investors) whereas others such as Oxford have raised their own fund in return for an option to invest in their spin-outs.

It is important to recognize that there is no ‘one-size-fits-all’ solution for this newly developing sector. Each university operates differently, with different cultures and drivers. As such, each university will find its own path with respect to the technology transfer and funding solution that suits it best.

So whats the conclusion of all thi: the comment by a the Vice Chairman of Leiden University seems therefore a bit, well shall we say…”dumb”? We are confident that he will revise his opinion once he reads the above comments of Imperial Innovations.

People who Live in Glass Houses Should Not Throw Stones Proverb


Author: 2 years ago

Most innovative businesses provide rewards and some form of recognition to inventors. There are two main reasons for having a reward and recognition program in place for inventors. Firstly in certain jurisdictions there are legal requirements to take into consideration, like e.g. Germany. Secondly and more importantly, a good comprehensive reward and recognition program encourages and motivates innovation and creativity.

The components of a reward and recognition program may include such elements as financial awards, plaques, patent festivals or celebrations, all giving the inventor recognition by Senior Management. Additionally top inventors can be recognized with exclusive get-togethers and published of league tables of the top inventors within the organization. The value of a simple ‘thank you’ or ‘well done’ should not be overlooked.

Statutory provisions

More than 80% of inventions are made by employees and it is therefore important that the company is aware of its rights with regard to an invention, as well as the rights of its employees. The general rule is that where an employee creates an invention in the course of his employment, this invention and any patent will belong to his employer. However, there are statutory provisions in place to ensure that the employee does not go unrewarded. Japan and Germany are two examples of jurisdictions where employee compensation is common, but there are others.

Financial awards:

The decision to deploy an inventor award program seems straight forward enough. However, implementing such a program is easier said than done. Prior to launching any such program, some key issues need to be considered and thought through.

  • What is the actual inventor award amount to be paid? How has this been calculated? How does the amount compare and contrast with competitors?
  • Does the company have employees in jurisdictions with inventor award legislation?
  • Is the award per invention (most common approach) or per inventor, as a percentage of inventions will have more than one inventor named? Or is some hybrid approach to be taken, e.g.
    • £1000 per invention split between up to 3 inventors
    • 4 or more inventors to get £250 each


  • When is the award to be paid? What stage of the patenting process has to be reached to trigger an inventor award?
  • Is the award to be a one off payment or paid out in at key milestones, e.g.
    • Milestone #1: The review decision, go for patent
    • Milestone #2: Filing the patent application
    • Milestone #3: The granting of the patent


    • Milestone #1: The review decision, go for publishing
    • Milestone #2: Getting the article published in some reputable publication
  • If the award is to be paid out at key milestones, then what are the award payments to be made at each milestone?
  • Is the amount to be paid the same for every invention / patent or does it vary depending on the rating or importance of the invention / patent?
  • Is there a financial award to be paid out for other outcomes other than filing a patent (e.g. publishing the inventive idea, keeping it as a trade-secret)?


  • Is there any flexibility to adjust the pre-determined award payment for special cases, and if so, what qualifies as a special case?
  • Are awards to be paid to employees who have since left the company, and if so, how are these people to be located?
  • Are inventor awards to be paid to student interns, to subcontractors and/or to collaboration partners (i.e. non employees)?
  • Who in the company is responsible for administrating the inventor award program
  • How are award payments communicated to the inventor(s)?
  • From whose budget is the inventor award to be paid?
  • How is the company to keep a track of who is due to be paid plus when payments are outstanding and over-due?


  • Does the company have some mechanism for monitoring total award payments for financial management purposes?


Recognition programs

Although the focus of this particular paper is on the financial award, an inventor reward and recognition program should ideally include other forms of employee recognition and not just financial payments. These recognition program may include such things as pins, plaques, luncheons, and annual award dinners. A number of companies hold annual inventor award dinners at each of their major research and development location. One company at least provides special colored employee security badges for recipients of their top inventor milestone awards. Many companies operate inventor newsletters and patent award wall plaques.

Some final thoughts

Some will argue that financial reward programs should not be considered at all, as it is the role of research and development engineers to invent. It should however be noted that putting an invention forward involves extra work for the inventor(s), filling out the invention report, answering questions posed by the patent attorney, reviewing the patent application, writing the invention article for publication (or working with an editor). This is typically work that is not in project plans for getting products/services out of the door.

Benchmark data suggests that a number of companies are rewarding their inventors well. Financial awards as well as annual patent ceremonies and such items as plaques for inventors are good well established practices in many companies. Increasingly company wide recognition of the top inventors, for example based on exceeding some threshold for the number of granted patents, is becoming the norm.

The correct emphasis should be on changing the culture of how businesses view employee inventors away from “we pay them to invent, that’s their job and they are lucky to have job security” whilst the Board oftentimes award themselves huge performance related bonuses. Instead the business needs to convey that it truly values and appreciates innovation because it is that which drives the company’s success and the inventor should rightly share in that. In my view there should be big bonuses for inventors those ideas generate considerable financial success for the company, so long as there is fair estimation of the value of the invention, and its contribution to the business.

Screen shots are taken from the inventor award module of Ash ‘invention capture & review’ tool

Donal O’Connell, IPEG consultant

Author: 2 years ago

The International Licensing Platform Vegetable Association (ILP) was founded on 13 November 2014 with the aim of improving the worldwide access to and use of plant traits. The platform applies exclusively to vegetable varieties. On the same day, the background to the ILP, including the story behind its formation and its scope, was a central topic at the symposium called ‘Breeding and Protecting, access to plant-related patents’ (Veredelen en Beschermen, toegang tot plant gerelateerde octrooien) which was organized in Wageningen by Netherlands Enterprise Agency (RVO) and the Board for Plant Varieties.

In this article, we will first consider several general characteristics of patent rights and plant breeders’ rights, both individually and in relation to one another, which have been important factors in the decision to establish the ILP. Furthermore, we will provide an outline of the agreements reached.

Patent rights, plant breeders’ rights, biotechnology

For many years, patent rights and plant breeders’ rights existed harmoniously side by side. Before the rise of biotechnology, the protection of biological material played no significant role in patent law. Plant breeders’ rights, which were specially devised to protect plant varieties, arrived on the scene much later than patent rights [1] but did not encounter any notable competition from patent rights at that time. Slowly but surely, that situation changed in the 1960s as the first, highly promising results of biotechnology began to emerge. Biotechnology was not only exciting and the subject of high expectations,[2] but it was also of high value, which is why the ‘biotech industry’ – as this sector soon came to be known – focused on the existing protection options. These were patent rights and plant breeders’ rights (and it was also possible to protect know-how through confidentiality agreements, but we will disregard that option here).

Patent rights offered (much) more. A patent holder could forbid all professional third-party use of genetically modified plant material (see articles 53 and 53a of the Dutch Patent Act 1995 (ROW)). Methods making use of the new techniques could be protected as such.

Additionally there was (and still is) a provision which excludes patenting of plant varieties and animal breeds (in 2014: art. 53 under b EOV and art. 3 para. 1 under c ROW), but the scope of the former provision was considerably reduced in Munich [3].  The exclusion clause with respect to essentially biological processes (at present art. 53 under b EOV and art. 3 para. 1 under d ROW) was also interpreted in the biotech industry’s favor to a certain extent [4].  Furthermore, various landmark decisions supported the patentability of living material in principle [5].

Plant breeders’ rights only offered protection for propagating material which had been produced and made available ‘for commercial purposes’ (see art. 40 para. 1 (old) Seeds and Plant Material Act), and did not facilitate the protection of (essential biological) processes. However, the most important aspect was that plant breeders’ rights included (and include) a breeders’ exemption which, firstly, entitles plant breeding companies to use material from varieties protected under plant breeders’ rights for breeding purposes and, secondly, entitles them (to protect and) to commercially exploit the resulting new varieties without the holders of older plant breeders’ rights being able to object (see art. 57 para. 3 under c Seeds and Plant Material Act 2005,  art. 15 under c and d Council Regulation (EC) 2100/94 on Community plant variety rights and art. 15 para. 1 under iii UPOV 1991). Thanks to the breeders’ exemption, breeders’ rights are a form of open innovation avant la lettre: everyone must allow a variety that they have improved to be used by others to develop a newly improved variety; in turn, that newly improved variety may also be used by anyone for further breeding purposes. This form of open innovation is in the interests of agriculture and horticulture as well as of consumers, all of whom benefit from crops which have been developed to include the newest and best traits.

The EU Biotechnology Directive of 1998 [6] laid down the patentability of biotech inventions in principle (in art. 1 para. 1; see also art. 2 and 2a ROW). The directive upheld the non- patentability of plant and animal varieties (in art. 4 para. 1 under a), albeit with an important nuance, namely that an invention which concerns plants or animals is patentable if the technical feasibility of the invention is not confined to a particular plant variety or animal variety (art. 4 para. 2) [7].  According to art. 8 and 9 of the Directive, the scope of protection with respect to patented biological material is broad and includes, among other things, all biological material that has been obtained from the protected material through propagation and which has the same traits. As a result, despite being exempt from patentability, plant varieties nevertheless fall within the scope of patent protection.


As a result of the emergence of a growing number of ways in which to protect the results of biotechnology by patents, a certain imbalance was created between plant breeders’ rights and patents. After all, plant breeders’ rights included a breeders’ exemption whereas the patent system did not. Patenting a plant trait meant that all varieties with that trait fell within the scope of protection, which in effect negated the breeders’ exemption contained within plant breeders’ rights. As the number of patents relating to biological material continued to increase, this situation caused mounting friction (incidentally, that was not the case for patented processes but they are currently being affected by a very different problem) [8].  This issue did not receive the political intention it deserved in the ten years of discussion leading up to the directive. To cut a long story short: the Dutch government also felt compelled to tackle the relatively difficult position in which the plant breeding sector had ended up. Several interesting reports provided an overview of the situation that had arisen and made numerous recommendations for improvement [9].

On 1 July 2014, art. 53b para. 2 ROW came into force which stipulates that the exclusive right of the patent holder does not extend to activities involving biological material for the purpose of breeding, discovery or development of other plant varieties [10]. As a result, a limited breeders’ exemption has been introduced into patent law (following the example of countries such as France and Germany). We say ‘limited’ because it does not include the aforementioned second component: after the exemption has been invoked to develop a new variety (which still contains the patented element), it is not possible to commercially exploit that new variety without first gaining permission from the patent holder in the form of a license.

The discussion is not over yet

With the introduction of a limited breeders’ exemption within patent rights, the position of the ‘classic’ breeder appears to have improved somewhat. However, this does not mean that the discussion about the relationship between the two in the above mentioned sectors is over. As already outlined, breeders still require a license after making use of the facility included in art. 53b para. 2 ROW. Additionally, it is important to realize that developing a new variety is an expensive process which can take many years. Therefore, no one will embark on the development of a new variety without being certain that they will be able to recoup their investment through the sale of that variety. Hence, the licenses required for commercial exploitation will have to be obtained at the start of the development process.

After all, no breeder will be so irresponsible as to risk investing in an expensive breeding program for many years, only to later conclude that they are unable to obtain a license – or only on unreasonable terms – and as a result will not be able to exploit their variety commercially. The Dutch Minister of Agriculture is currently looking into the opportunities, both nationally and internationally, for also including an exemption in patent law which goes beyond the current, limited one [11].  It remains to be seen whether that will ever materialize. One thing is for sure: this is a long-running issue which requires patience, not least due to the fact that – as the minister has also already indicated – a (more) extensive breeders’ exemption may be in conflict with the EU Biotechnology Directive and/or the TRIPS Agreement [12].

Other possible solutions suggested in the above mentioned reports are currently being explored, such as stricter assessment of ‘biological’ patent applications both at national level and by the European Patent Office, and where possible the application of competition law (in the case of abuse of a dominant economic position).

The discussion is not limited to the political arena; the topic has also fueled heated debates in the plant breeding sector itself. Advocates of patents which restrict the use of biological material claim that these patents stimulate innovation, knowledge sharing and continual investment in research and development. Opponents counter that such patents are superfluous because there is already a specific intellectual property right for products from plant breeding, namely plant breeders’ rights. Furthermore they claim that patents hinder the work of breeding companies, either by preventing their access to biological material or by imposing such unreasonable preconditions or causing such a delay that they lose their position in the market [13].

All these discussions led to the conclusion that the two sides would not be able to reach agreement. However, they did agree on the fact that access to biological material is crucial for innovation within plant breeding. While the political discussion rages on, the vegetable sector itself has launched an important initiative aimed at better safeguarding the all-important access. If it is a success, it could well become the blueprint for other sectors in the longer term [14]. The following paragraphs will examine this in more detail.

The International Licensing Platform Vegetable

The International Licensing Platform Vegetable (ILP) is an association, whereby it is compulsory for members to grant the other members licenses for use of their patents15. However, companies are not required to be patent holders in order to become members. The only obligation for companies without patents is payment of the membership fee, which is set at such a level so as not to form a barrier to joining the association.

If a member wishes to obtain a license for a particular patent and the patent holder is a member of the ILP, the member is first expected to enter into negotiations with the patent holder. If no agreement can be reached on the licensing conditions within three months, the company applying for the license can write to the ILP secretary, who will then initiate the so- called “baseball procedure” [16]. This entails both parties submitting their proposal for a royalty percentage to the secretary. The secretary subsequently informs both parties about the proposals so that each party knows which royalty percentage the other has in mind. Based on this knowledge, both parties receive another opportunity for bilateral negotiations. If they still fail to reach agreement then a committee of experts (the “Expert Committee”) becomes involved. The Expert Committee decides according to the “baseball arbitration” model as is used in the USA. In the present case, this means that both parties’ proposals are presented to the experts who then choose between the two proposals. In other words, they may not decide to split the difference between the two percentages. Hence, both parties are forced to be reasonable from the start; after all, an unreasonable proposal will be rejected in favor of the more reasonable one.

Based on a standard licensing agreement which has been agreed upon within the ILP, the secretary then draws up the relevant licensing agreement including the royalty percentage as decided by the experts. The agreement is presented to both parties for signing.

Once the experts have determined a licensing fee for a particular patent, all other members have the right to obtain a license based on the standard licensing agreement including the royalty percentage chosen by the experts. This is in line with the most-favored-nation (MFN) clause [17] which is commonly used in licensing agreements. The clause stipulates that the royalty percentage paid by the first license holder must be reduced as soon as the patent holder grants another party a license at a lower royalty percentage.

If two ILP members sign a licensing agreement which deviates from the standard licensing agreement, the MFN percentage does not apply since then a fair comparison would no longer be possible. An ILP member that is interested in a license and a patent holder (and also ILP member) may prefer to agree on a lump sum rather than a royalty percentage. The baseball procedure can also be initiated in this case. However, the MFN percentage does not apply in the case of a lump sum; since the fixed licensing fee is paid in one go, there is no ongoing payment obligation which can be adjusted at a later date.

If a party disagrees with the experts’ decision, it can submit an appeal to the “Expert Committee”. In this case, other experts than the ones who made the original decision will decide. In view of the nature of the procedure, the ILP has decided to limit the grounds for appeal to formal ones. In other words, it is only possible to reverse the decision for a certain royalty percentage if it can be ascertained that the procedures have not been followed correctly. In the case of a reversal of the decision, the baseball procedure will be re-initiated.

Within the ILP, it has also been taken into consideration that changing circumstances can result in a changed view of the reasonableness of the royalty percentage which, based on the “MFN percentage”, applies for each licence for a particular patent. For example, in the case of a patent on a resistance to a particular disease, if the disease occurs only on a small scale then the resistance is less important and hence is of less economic value. However, if the disease should later spread at international level, the resistance will be of crucial importance and hence its value will also increase. If the patent holder believes that such a change in circumstances should result in an adjustment of the royalty percentage, it is possible to initiate a review procedure. In that procedure, the patent holder will be required to demonstrate that there has been a material change in the value of the trait which justifies a substantial increase in the royalty percentage. All members who have signed a standard licensing agreement including an MFN percentage with that patent holder are allowed to contest the patent holder’s claim. If the “Expert Committee” deems that there is sufficient evidence that a material change has occurred which justifies the proposed increase, the patent holder’s new suggestion will be accepted as the new royalty percentage. Conversely, there may be situations in which a resistance becomes ineffective and hence the economic value of the trait decreases. In that case the ILP member can ask the patent holder to reduce the MFN percentage. If the patent holder refuses, the ILP member can request the Expert Committee to lower the MFN percentage. Then, it is the ILP member’s responsibility to demonstrate that a material change has occurred which justifies a substantial reduction. The patent holder may provide counterarguments, and may choose to argue to maintain the existing MFN percentage. The patent holder may also suggest a percentage which is higher than the other ILP member’s suggestion yet lower than the current MFN percentage. If the “Expert Committee” decides to increase the MFN percentage then the new percentage will only apply to standard licensing agreements which are signed after the date of the increase. Because the review procedure is also based on the principle of baseball arbitration, this ensures that in the case of changing circumstances both parties are once again forced to be reasonable and hence that the MNF percentage also remains reasonable.

In addition to the “baseball procedure”, another rule applies in the case of patents for varieties as such. This may seem strange at first glance because plant varieties as such are explicitly excluded from patentability. However, the ILP applies worldwide, and hence also for patents in the USA for example, where plant varieties as such are patentable. Within the framework of the ILP, the term used in this context is ‘variety patents’. These patents protect a plant variety rather than a trait in a particular crop (or multiple crops). In that sense, it is comparable to a plant breeders’ right only without the breeders’ exemption. For patents of this kind, the members have agreed not to exert their rights against another member if that member uses the protected variety to develop another variety. However, the new variety must be sufficiently distinct from the protected variety; members are not expected to simply ‘copy’ the patented variety.

Future access

By establishing the ILP, the founders intend to safeguard the access to the biological material which is so crucial for innovation. The ILP does not offer the same legal protection as the law does; nevertheless, unlike national or European patent legislation, it applies globally.

Needless to say, full access is only assured when all the relevant patent holders in the world participate, but more new members are expected to join rapidly. Furthermore, vegetable breeders are not the only ones who apply for patents; discussions about the breeders’ exemption are also taking place in other agricultural and horticultural sectors. Perhaps a system such as the ILP, if necessary with crop-specific adjustments, could also offer them crucial access to biological material on reasonable terms.

Marian Suelmann and Paul van der Kooij

(G.H.M. Suelmann is a company lawyer at Rijk Zwaan Zaadteelt en Zaadhandel B.V.; P.A.C.E. van der Kooij is a senior lecturer at Leiden University).
The English text of this article is an unofficial translation of a contribution that was published in Berichten Industriële Eigendom (BIE) 2014, p. 260-263.


[1]  The Plant Breeders’ Decree dates from 1941, and the first Seeds and Plant Material Act from 1966.
[2]  In a couple of cases, imaginations ran wild. At the UPOV Symposium on 13 October 1982, entitled Genetic engineering and plant breeding, UPOV, Geneva 1983, p. 11, a caution was issued against hallucinations about “maize that whistles and radishes that ride bicycles”.
[3]  See e.g. BoA EPO 26 July 1983, case T 49/83, OJ EPO 1984, p. 112 (Propagating material/Ciba Geigy).
[4]  See BoA EPO 10 November 1988, case T 320/87, OJ EPO 1990, p. 71 (Hybrid plants/Lubrizol). For a much more recent decision on this, see GKvB 9 December 2010, consolidated cases G 2/07, OJ EPO 2012, p. 230
(Broccoli/PLANT BIOSCIENCE) and G 1/08, OJ EPO 2012, p. 206 (Tomatoes/STATE OF ISRAEL).
[5]  See e.g. BGH 27 March 1969, GRUR 1969, p. 672 (Rote Taube); U.S. Supreme Court 16 June 1980, GRUR Int.
1980, p. 627 (Diamond/Chakrabarty).
[6]  Directive 98/44/EC of the European Parliament and the Council of 6 July 1998 on the Legal Protection of biotech­nological inventions, Pb. EG dated 30 July 1998, L 213/13.
[7]  See also Enl. BoA 20 December 1999, case G 1/98, OJ EPO 2000, p. 111 (Transgenic plant/NOVARTIS II)
[8]  See also e.g. Bostyn, Patentability of Plants: At the Crossroads between Monopolizing Nature and Protecting Technological Innovation?, The Journal of World Intellectual Property 2013, pp. 105; Van der Kooij, Bescherming van door kruising en selectie verkregen planten via het octrooirecht?, BIE 2013, pp. 218.
[9]  See in particular Louwaars c.s., Breeding business, The future of plant breeding in the light of developments in patents and plant breeder’s rights, CGN Report 14, Wageningen 2009; Trojan, Oplossingsrichtingen voor de problematiek van samenloop van octrooirecht en kwekersrecht in de plantenveredeling, The Hague 2012.
[10]  Stb. 2014, 49. Kamerstukken (Parliamentary documents) nr. 33 365 (R1987).
[11] See Kamerstukken II, meeting year 2014–2015, 27 428, no. 290.
[12]  See re. the latter also Van der Kooij, TRIPS en de kwekersvrijstelling, BIE 2012, pp. 12.
[13]  See also the recent press release on under nr. B913342.
[14]  It involves companies from the Netherlands, France, Switzerland and Japan.
[15]  The agreements apply to patents which block the use of biological material for the development of new varieties and/or the commercial exploitation of those new varieties.
[16]  The name “baseball procedure” is based on an American type of dispute settlement usually indicated as “baseball arbitration”. According to this type of dispute settlement each party proposes to the arbiters the decision it considers appropriate in the specific case. The arbiters are only allowed to choose between the proposals submitted by the parties and their decision is binding upon both parties. This type of dispute settlement is in particular known from the baseball sport where it is used to settle disputes between baseball players and their club about the players’ salaries.
[17]  The most-favored-nation clause is common in many treaties on trade issues; the clause gives other countries the same trading opportunities as the most favored nation.
Author: 3 years ago

This article appeared in a publication commemorating the 100 year existence of the Dutch “Patent Act 1910”, published by the Netherlands Patent Office (“Octrooicentrum Nederland”) in 2010 by Severin de Wit

It is not generally known that the Patent Act 1910 marked the end of an era in which no patent legislation existed. A major feature of the latter half of nineteenth-century Europe was that of an anti-patent sentiment, but it was primarily in the Netherlands that it actually gained a foothold.1 In 1864, the whole industrial sector presented a petition to the King, requesting that the current patent system, which had been introduced in 1817, be abolished. There were several reasons for the movement. Some critics put forward philosophical arguments, such as whether or not intellectual ideas should have ‘owners’, who would be able to monopolize their use (the present-day equivalent is the idea that information should be free).

Others were in agreement with the patent principle and accepted the argument that it was beneficial to society as a whole to encourage innovation by rewarding inventions. Those favoring this view asserted that it would be too difficult to create a system in which ‘real’ innovation would be rewarded. This was summarized by The Economist in 1851:

‘The community requires (…) that skilful men who contribute to the progress of society be well paid for their exertions. The Patent Laws are supported because it is erroneously supposed that they are a means to this end’ 2

The patent system was abolished in 1869, but it is noteworthy that this did not mean that there were no more innovations or technological changes – the groundbreaking invention of Willem Einthoven that led to the electrocardiogram (the string galvanometer3) is a case in point. Schiff4 (1971) researched inventive activity in Switzerland and the Netherlands in the ‘patent- free’ period (1869 to 1912 in the case of the Netherlands) with that of countries with a patent system. He began by asking whether patents markedly increased the level of inventive activity, before examining whether, if so, this also resulted in a more rapid rate of industrial development in a country. No clear picture emerged from his findings in relation to the first question, but there nevertheless appears to be enough evidence that the reintroduction of a patent system in 1910 did lead to greater levels of inventive activity.5 The lack of patent protection did not have any noticeable effects on the rate of industrial development.6

As we celebrate the hundredth anniversary of the Patent Act, little appears to have changed compared to the situation that prevailed as the nineteenth century ended and the twentieth began. Once again, there is growing resistance to patents, the patent system and the quality of patents. This is particularly noticeable among entrepreneurs with small and medium-sized businesses and the IT industry, not least – as far as the IT industry is concerned – because of the emergence and success of open source.7 Many people point to the rise of the IT industry in Silicon Valley in the 1980s, the enormous growth of which came about without the need to worry about patent protection. By the time a patent was granted, the software in question would have become outdated. Software and other IT specialists enjoyed a great deal of freedom in their field of operations, unfettered by copyright or patent restrictions. But it was the growth of open source and open innovation projects that caused many people to wonder whether or not patents were necessary for encouraging technological progress, or whether they actually served to hinder innovative and technological developments. It was no wonder that the introduction of a Software Directive by the European patent community led to unrest among a significant proportion of the IT industry, so much so that when the European Commissioner responsible for the Directive visited the Krasnapolsky Hotel in Amsterdam, he was greeted by a large demonstration.

It is mostly foreign – American in particular – economists who have involved themselves in the debate about whether patents stimulate innovation. There has recently been an increase in anti-patent publications, as apparent from a large number of anti-IP bloggers8 and academic publications.9 This has been caused by the discussions about the activities of the music industry in taking legal action against children and grandmothers for illegal mp3 downloads, the use of patents in developing countries resulting in their having reduced access to anti- AIDS medicines, for example, royalty stacking10 and the consequences for downstream R&D, to name but a few. The rise of an actual Pirate Party,11 which secured no fewer than seven per cent of the votes in Sweden at the last European elections, is a further sign that anti-patent sentiment is no longer at the smouldering stage, but instead is threatening to turn into a burning issue.

It is interesting to see how academics are analyzing this anti-patent trend. Two well-known American economists, Michele Boldrin and David Levine, recently published a book12 in which they fulminate about the patent system, which they assert serves only to inhibit innovation.13 Abolition is the key.14 These are not lone voices in the wilderness, but part of a movement that appears to be gaining ground, as evidenced by the wide-ranging support that opponents of patents are receiving from blogs and academic publications.15 The increasing criticism of the way the patent system works has, in the United States at least, led to greater activity in government and the courts in recent years. In 2003 – after extensive hearings where testimony was heard from anybody with even the remotest connection with the patent system

– the US Federal Trade Commission published its report entitled ‘To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy’,16 containing recommendations for modernising and improving the stuttering patent system. The recommendations are very much worth reading, and are relevant to Europe, too. In the US, this not only immediately unleashed a heated discussion,17 but also resulted in action on the part of Congress, which set about making a major overhaul of the system.18 The country’s courts, too, became involved between 2003 and 2009. The criteria for granting patents were tightened up, and the opportunities for taking out short-term injunctions for patent infringements were drastically curtailed. In academic circles, it is primarily economists who are at the forefront of the discussions on patent reform and its effects.19

This does not mean that the way the patent system works has been ignored in Europe, but it has to be said that, in typical European fashion, there have only been words, recommendations’, and surveys. Little progress has been made on the legislative front, as shown by the attempts at creating a Community Patent.20 The process has been deadlocked for years with successive EU Commissioners trying to breathe new life into it, but to little effect. It has been reported that one EU Commissioner described IP as a ‘headache’ for which no electoral gain was to be had.21

There is now a deafening silence in the Dutch academic IP community, which at present appears to be concerned only with knowledge of substantive patent law. Publications on the relationship between patents and innovation are very thin on the ground, as is awareness of the significance of the economic and legal value of knowledge and the role that patent management, for example, has to play in it. There is also a willingness to leave criticism of how the patent system works to others outside the Netherlands, which is surprising given that academic tradition in patent law has been dominated in recent decades by practitioners from the legal profession and the courts who, as a result of their background and experience, are primarily interested, and have expertise in, the interpretation of aspects of substantive patent law. It is these people, with practical experience, who occupy the Chairs of Intellectual Property at Dutch universities. There is not a single legal or economics faculty at a university in the Netherlands that has a Chair in Intellectual Property Management or a related subject where the social, economic and market aspects of patents are taught.

Industrial expertise in the field of knowledge management and appreciation of industrial property is generated by practical business experience, and not as a result of universities offering a relevant curriculum for young entrepreneurs or lawyers or economists. No serious attention is paid to the role of patents in the economic process, the importance of patents in innovation processes, the value of patents, the conversion of patented knowledge into ‘value’ for an organization or patent strategy at any legal or economics faculty.22

All this will have consequences for the way in which future generations of entrepreneurs regard the economic significance of patents. The lack of any university teaching of economics-based patent management will also be reflected in the actions of politicians and, in more general terms, in the users of patented knowledge.23 Last but not least, it will impact upon Europe’s competitive strength vis-à-vis major powers like China as well.24 It is therefore no great surprise to learn that most CEOs and CFOs have no idea what role, if any, patents play in their organizations. There are a few exceptions: Philips and Thomson in Europe, for example, and many American companies (where, unsurprisingly, education places a much greater emphasis on the subject of IP management).

How will this be reflected in the Patent Act in 2110, assuming for the purposes of our argument that future generations of lawyers and economists can be persuaded to take patent protection seriously? As has been shown in the US, the way in which patents are granted and subsequently interpreted will, to a large extent, determine whether or not we will still have a Patent Act (or European equivalent if it ever reaches that stage), as will a greater focus in the education system on the significance of non-substantive aspects of the patent system. This brings us to the question of where the growing criticism of the quality of patents is coming from, and whether that will affect how substantive patent law will evolve and whether or not we will still have a Patent Act in 2110. Or perhaps we will see a revival of the anti-patent movement of the kind that existed in the nineteenth and early part of the twentieth century?

The emergence of patent auctions in 2006 – started by Ocean Tomo25 in the US – has at least gone some way towards highlighting the value of patents. Much has been said and written about the meaning of intangible intellectual property and patents in particular. It is generally recognized in both tax and economic-related dealings that patents should be treated as intangible assets,26 although this has not led to a clearer insight into the ‘value’ of patents. What the auctions have done is to raise the popularity of patents as a value factor. The value at an auction is, after all, determined by the level of the bid for the patent by the bidder, anonymous or otherwise27. However, the day-to-day reality is not quite that simple. The value at an auction is the price that is offered for the patent. As long as the reserve price is low enough, then a bid will soon result in a sale – in other words, in a sale price. But is that actually what the patent is worth? It depends on whom you ask. For the buyer and his accountant, it probably is: they will record the price paid as acquisition costs on the balance sheet in the form of goodwill. If, in the future, it starts to generate patent license income that leads to a greater return than the acquisition costs, then the patent will have acquired a ‘value’ that bears no relation to the price for which it was bought at the auction. If that knowledge is available at the time of the auction, for example in cases where a patent is sold which is already generating license income, then that will provide a firmer base on which to determine its value. If you ask a lawyer who has to advise his client about the value of a patent on offer, then he will base his answer on a risk analysis. In the legal world, that usually means an opinion in which a prior art publication has popped up somewhere in the world which makes the patent worthless (as a result of being made null and void). However, if the same question is put to an IP manager in a company, then he will set the value according to where the patent fits into the organization, and that depends on whether it serves to protect the organizations own products or those of a competitor, allowing him to obtain a ‘patent truce’.

This is where patents, as intangible assets, are different to other assets. Value is contextual. If, in order to be able to trade its goods, an electronics manufacturer has to ‘buy in’ patent rights from third parties – in the form of a licence, for example – as well as components, the value of the licensed patents is set at the ‘purchase value’ of such rights: in other words, the price of the licence that has been paid to acquire the rights that are needed to get the goods to market. However, if a party has its back to the wall in a patent-related legal dispute, the ‘value’ of a patent that enables it to launch a counterclaim is many times greater than the ‘objective value’ that a similar patent would be worth in normal market conditions. The price that a buyer is willing to pay would therefore be greater than what would be considered justifiable in ‘normal’ market circumstances.

The price of an asset such as real estate is the transaction amount that is arrived at through market supply and demand or, in a non-auction context, a process of negotiation. This price may therefore be higher or lower than the value. It will be determined by market conditions, by strongly subjective motives on the part of both the buyer and vendor, and by their negotiating skills. The value arrived at in this way is the market value – the price that the market is prepared to pay – depending on the quality of the real estate, its location and general market conditions such as access to finance and so on. However, the market for patents is neither predictable nor logical.

Another illustrative example in this context is that of the value of investments (shares, bonds and other negotiable instruments). The overriding theory in this field assumes an ‘efficient market’ that the investment market calculates every relevant factor efficiently, thereby resulting in reasonably predictable market movements. The use of benchmark data is used as a starting point for buying and selling decisions. Unfortunately, a similar generic concept for intellectual property has not been developed, nor has the need for one been very widely accepted. The ‘market’ for patents is therefore anything but ‘efficient’.

Value is not only a topic that returns again and again at patent seminars, but also one that leads to many kinds of discussions, question and academic debates. It also remains a reasonably untapped field, in which standards and best practices are lacking. This is apparent just from the fact that there are presently in excess of one hundred patent valuation methods. Such uncertainty about the value of patents will undoubtedly not help achieve a wider acceptance of patents as something that organizations should factor into their activities, nor to the realization that patent policies should be an integral part of every business strategy.

Any contribution to a publication marking the hundredth anniversary of the Patent Act should end on a positive note, if only because a law that has lasted a century and forms the basis of the day-to-day activities of a large group of IP specialists and academics, merits such appreciation. However, it is not easy to be positive, not least because it is impossible to dismiss the impression that genuine renewal of the patent system continues to elude us. In addition, the courts in Europe, unlike the Supreme Court in the US, are insufficiently willing to take the lead in creating legal certainty and predictability in patent-related decisions. Hopefully, though, this is something we will be able to face up to the next few decades, resulting in a modern, Europe-wide, simple variant of the Patent Act 1910.



1 Machlup F. & E.T. Penrose (1950) The Patent Controversy. The Journal of Economic History, X(1), 1-29.

2 Jaffe A. & J. Lerner (2004) Innovation and Its Discontents. Princeton University Press, 86-87.

3 Barold, S.S. (2003) Willem Einthoven and the Birth of Clinical Electrocardiography a Hundred Years Ago. Cardiac Electrophysiology Review 7(1).

4 Schiff, E. (1971) Industrialization without national patents, The Netherlands 1869-1912, Switzerland 1850-1907. Princeton

5 See Dutton, H.I. (1984) The patent system and inventive activity during the industrial revolution 1750-1852. Manchester University Press, 5-6.

6 For some interesting examples of industrial development in the Netherlands in the second half of the nineteenth century, when no patent

protection existed, such as the emergence of two national industries – from Philips to margarine factories – see Cullis, R. (2007) Patents, inventions and the dynamics of innovation: a multidisciplinary study. Edward Elgar, 212-213.

7 Kogut B. & A. Metiu (2001), Open-Source Software Development and Distributed Innovation (Wharton School, University of

Pennsylvania), Oxford Review of Economic Policy, 248-264.

8 Techdirt, (, Patently-Silly (, Lawrence Lessig’s blog (

9 See, for example, Nobel Prize winner and economist Professor Stiglitz, J. (2006) Making Globalization Work. Norton & Company. See also

note 2.

10 Lemley M. & C. Shapiro (1992), Patent Hold Up and Royalty Stacking. Texas Law Review, 85, 249.

11 See

12 Boldrin M. (University of Minnesota) & D.K. Levine (University of California, Los Angeles) (2008), Against Intellectual Monopoly, may be downloaded freely from, available in hardback via Cambridge University Press.

13 When warnings were issued in the 1980s – I think it was by S.K. Martens – about the anti-competitive aspects of intellectual property, the IP world was too small.

14 See also Jaffe & Lerner, note 2.

15 This is also the conclusion on quantitative and econometric grounds, see the authors listed under note 12, Boldrin, M. & D.K. Levine. (2005), The economics of ideas and intellectual property. National Academy of Sciences, PNAS, 102(4) 1252-1256, who assert: ‘Our own conclusion, based on empirical as well as theoretical considerations, is that on balance it would be best to eliminate patents and copyrights altogether’.


17 See, for example, Merrill, S.A., R.C. Levin & M.B. Myers (2004) (eds), Seven Recommendations for a 21st-Century Patent System, Committee on Intellectual Property Rights in the Knowledge-Based Economy, National Research Council.

18 The Patent Reform Act, for an overview see one of the best-known patent blogs in the US, ‘Patently-O’,

19 Gallini, N.T. (2002), The Economics of Patents: Lessons from Recent U.S Patent Reform. Journal of Economic Perspectives, 16(2), 131- 154.

20 Community Patent; the most recent position at the time of writing of this article is the ‘Recommendation from the Commission to the Council to authorise the Commission to open negotiations for the adoption of an Agreement creating a Unified Patent Litigation System’ (March 2009).

21 See also EU Commissioner McCreevy on EPLA, IPEG blog,

22 Not to be confused with litigation strategy: acquiring the most effective protection for IP by strategically using litigation tools and geographical opportunities.

23 See Maskus, K.E. (June 2005), Emerging Needs for Including Intellectual Property Education and Research in University Curricula,

paper for WIPO International Symposium on Intellectual Property Education and Research, Geneva.

24 Even in China, the country that we in the Netherlands like to assert has little respect for IP, there is a university with IP Management on its curriculum, the University of Technology (Tsinghua University). See Hua Guo, Jones Day, China, Case Study: IP Management at Tsinghua University,   (

25 Ocean Tomo has recently moved the ‘auction business’, which has only produced minimal yields averaging less than the historical cost-

price, to a smaller unit and focused increasingly on more lucrative activities such as litigation support and expert witness work.

26 Blair, M (2001), Unseen Wealth: Report of the Brookings Task Force on Intangibles. Washington DC: Brookings Institution Press. Wilson, R.M.S & J.A Stenson (2008), Valuation of information assets on the balance sheet: The recognition and approaches to the valuation of intangible assets. Business Information Review, 167-182.

27 Most bidders at auctions organized by Ocean Tomo did their bidding by telephone (that is, anonymously); it has been maliciously suggested that most bidders in recent auctions were patent aggregators like Intellectual Ventures (Bellevue, WA, USA); see also Millien and Laurie (2007), Established and Emerging IP Business Models. The Eighth Annual Sedona Conference on Patent Litigation conference paper.







Author: 3 years ago

How Nokia’s smartphone software strategy failed and ultimately killed the brand.

Much has been written about the ups and downs of the cellular / mobile phone industry over the past 25 years, and particularly the smartphone industry in more recent times. There seems to be a rule in this particular sector that the leading companies eventually lose their positions – often quickly and brutally. Mobile phone champion Nokia, one of Europe’s biggest technology success stories, was no exception, losing its market share in the space of just a few years.

In 1999, one in every three phones sold in the world was a Nokia handset and the Nokia brand was the 5th most recognisable brand in the world. Not so long ago, the thirteen note ringtone of a Nokia handset was the de facto soundtrack of the mobile revolution. By 2007, Nokia had achieved a market dominating position with more than 40% of mobile phone sales worldwide. But consumers’ preferences were already shifting toward touchscreen smartphones and mobile applications. With the introduction of Apple’s iPhone in the middle of that year, Nokia’s smartphone market share shrank rapidly and revenue plummeted. On 25th April 2014, Microsoft Corp. announced it had completed its acquisition of the Nokia Devices and Services business for US$7.2 Billion, and just recently announced plans to stop using the Nokia brand on its handsets altogether. Nokia as a brand has all but disappeared.

The demise of Nokia has mystified and fascinated many, given the tremendous success it enjoyed during the late 1990s and early 2000s, its roots in Finland, and its historical ability to re-invent itself. So where did it all go wrong for Nokia? In practice, Nokia died from a thousand cuts rather than any one specific mistake, but the software cut was the deepest.

Mobile Phones become Smartphones

The convergence of digital technologies, the emergence of the mobile Internet and advances in technology integration enabled the smartphone era. The biggest issue Nokia faced was that they were a hardware company and not expert in software and software management. Any company switching from hardware to software or vice versa faces major challenges and Nokia was no exception. Throughout much of Nokia there was a lack of understanding of the significance of software, how to manage it and what appropriate business models to adopt. The company was much more at ease with mobile communications technology and hardware such as electronics and mechanics, but faced major difficulties understanding, appreciating and managing software.

Building a Software Organisation

At the time the smartphone market development started, Nokia’s senior and middle management was populated by people with mobile phone business and mobile hardware backgrounds. Most were very experienced and capable people, but lacked experience of software and Internet based business models or of leading large software development organisations. The company could have aggressively hired Silicon Valley or software industry experts in the early 2000s to prepare for smartphone and online service development. This may have injected some much needed software and Internet business understanding and strategy. Instead, Nokia chose to look internally for its software strategists and leaders. At that time, software development process and discipline was lacking in many key teams – with the possible exception of cellular software – and this was impacting product quality and slowing progress in developing a smartphone platform.

It’s only software” was a common refrain in Nokia, trivialising the problems associated with managing the increasingly complex software technology and architecture. Senior management could easily understand the process and status of mechanical tooling or printed circuit board design, but the same did not apply when it came to software – there was clearly a disconnect between software engineering and management.

Selecting a Software Platform

Tough decisions about which software platforms to support, and which ones to ‘kill’, were made slowly. Nokia tried to support multiple software platforms, variants and releases (Series 30, 40, 60, 90, Maemo, MeeGo) which meant ineffective and inefficient use of valuable resources, as well as fomenting internal rivalries. Supporting multiple platforms put tremendous pressures on other parts of the company as well, not just the software community. Product Management, Services, Software Procurement, After-Sales Service … all these functions were stretched by the diversity of software options in Nokia’s products. One could even argue that in Symbian, Nokia made the wrong choice of platform for smartphone development as it was optimised neither for real-time nor touch, requiring a huge effort to correct and leaving Nokia far behind the competition. Symbian, was clunky, complex and not consumer or developer friendly.

By the late 2010’s, with Android joining Apple in the market, the two main smartphone software platforms were Unix/Linux based, although they used different application programming languages. Fuelled by the explosive growth of applications in both Android and Apple ecosystems, development tools quickly emerged that enabled application developers to port their software from one platform to the other. Symbian was not in that club, but perhaps MeeGo could have been? The MeeGo joint development with Intel promised a new platform which could gain wider developer acceptance and enable Nokia to refresh its smartphone UI, but after only one product launch, MeeGo was dropped in 2011 when the deal with Microsoft was announced.  In the end, for a variety of reasons, Nokia chose Windows Phone. After two years of making Windows Phone products, Nokia had 90% of market share for the platform, but only 10% for the overall smartphone market (by volume, Andoid now has 75% and Apple 15%). Since then, market share has dropped.

Connecting to Users

Despite all of the resources allocated to customer research, market analysis, business intelligence and consumers, Nokia was late to spot the key trends in the developing smartphone market, most notably, touch UI and mobile applications. Even if they were aware of such trends, the company failed to energise itself in those directions until competitors had led the way. Some key figures within Nokia even thought that touch was a novelty feature not to be taken seriously. The lack of a coherent strategy for software and services, coupled with an overloaded requirements management system not fully integrated with holistic product management, caused a disconnection between consumer needs and delivery teams. Nokia became a follower, not a leader.

Creating an Ecosystem

Nokia struggled to create a viable Symbian ecosystem and monetise it in the way that Apple had done with the iPhone and iTunes. Most available Symbian applications were operator or business oriented, rather than consumer focused. Later releases of Symbian were not backwards compatible with earlier versions, so existing applications required extra effort from developers to port them to the new release. This caused a fragmented ecosystem that was confusing for developers and users alike. With over 1.2 million applications in both Google’s Play store and Apple’s iStore today vs. 300,000 in Microsoft’s Windows Phone store, the gap continues to widen. Symbian application development support tools were poor and often delivered late, giving developers little time to finalise their applications before the new release was in the market. The acquisition of Trolltech and the introduction of Qt on the Symbian platform didn’t drive application development as hoped. For these reasons, the developer community did not thrive and grow, leaving the door open for Apple and Google. Symbian also did not attract many licensees, the key ones who actually brought Symbian-based smartphones to market were Fujitsu, Mitsubishi, Motorola, Sharp and Sony-Ericsson – but in all cases the sales volumes were low and Symbian was eventually dropped. Nokia was left standing alone.

Nokia’s naivety in the software business also affected its software procurement function. Software procurement was split between different parts of the organisation with unclear responsibility and accountability. For example, there were two procurement functions responsible for software: direct and indirect. In the early days the responsibilities were clear, but as software technology developed to be functioning both online and on the device the waters were muddied. Like so many corporate behemoths before them, the Finnish phone giant grew dangerously intoxicated on its success during the late 1990s and early 2000s. Having ridden so high for so long, it is perhaps no surprise that a degree of complacency and arrogance crept in. This led to Nokia believing that it had little to gain by adopting software from outside.

Building a Service Offering

Nokia’s online service strategy faired equally badly. Software services were run by a separate business unit within Nokia with a lack of coordination to smartphone software, creating a fragmented, uncompetitive and non-viable ecosystem. Nokia tried to compete in maps and navigation, music, online apps store, photo library, games, messaging, mobile wallet and several other online services through both acquisitions and internal developments. The responsibility for procurement of consumer services was split between product management, developer support, marketing and the sourcing function. Once again the need to manage the needs of these different entities caused an increased delay in decision making and thus allowed faster moving competitors to close the gap. Nokia’s software mode of operation and organisational structure also posed problems as there were many very large software teams distributed across the organisation often disconnected from the customer and end-user due to a software ‘factory’ mode of operation. The Ovi sub-brand was created in 2007 for Nokia’s services, but failed to create a coherent offering and by 2011 was just a media and apps store. Nokia was aiming for global domination, but in the end, only maps and navigation remained viable.

Where did it all go wrong?

Nokia entered the new millennium as a mobile communications giant and pretty much created the smartphone category for the mass market. In 2005, Nokia had over 50% market share in smartphones and from 2005-2011 tried to develop an ecosystem and services that could rival Apple and Google, but it failed to …

  • Appreciate the importance of software to the smartphone business
  • Understand the key technology changes and consumer trends
  • Select a software platform that would support services and applications reliably and attract other smartphone licensees
  • Develop viable business models that included online services and mobile applications
  • Build a software development process that was integrated with holistic product management
  • Foster a developer community and apps ecosystem
  • Seek out the best expertise or partners to help expand into the software business

All of the issues listed above relate to software in one way or the other, and it is for this reason that the software cut was the deepest. Nokia failed to properly understand, manage and develop their software business. Software killed Nokia.

By Donal O’Connell, Bruce Godfrey, Nick Filler
This article was first published in November 2014 as a White Paper by Waves Associates Ltd.


Author: 3 years ago

IP-centric businesses whose shares trade on the public markets come in many shapes and sizes — some are better suited for return than others. Many of the most interesting IP-rich businesses, from an investor perspective, are publicly traded, thinly capitalized companies with experienced management. The best have a realistic view of their IP assets, usually patents, and the timing and cost of their disputes and value of potential licenses. The emergence of public IP-rich companies (PIPCOs) whose shares trade on the global exchanges is presenting new opportunities for patent holders and investors alike. They are the subject of the next (March) Intangible Investor, “PIPCOs – A Business Model Whose Time Has Come,” (IAM publication).

Pure-play licensing businesses, non-practicing patent licensing companies with a single method of generating return, are being challenged by business models that provide more options and potentially greater return. Through self-generation, acquisition or merger with complimentary operating units, publicly held licensing companies are emerging as businesses that are more readily understood by investors, able to access the capital markets, and acceptable to the courts.

Global Interest

At last count, there are no fewer than 25 companies that trade on US, UK and Canadian stock exchanges that include among their primary goals direct patent monetization. Around 2012-2013 they would all be considered NPEs. Today, only a few are licensing-only pure-plays. The mix now includes enforcement businesses that support inventors and SMEs; licensing businesses that conduct proprietary R&D and obtain patents through filings; and those sometimes called profiteers that acquire rights from others, including operating companies that stand to profit.

More public IP businesses today are a combination of models that include smaller, under-capitalized operating companies that are selling products or attempting to commercialize them. While the patent monetization business makes good sense, it is not for every holder or investor.

With the exception of Qualcomm, Acacia, InterDigital and VirnetX, all with billion dollar plus valuations, public IP companies tend to be companies whose value is under about $500m. Mosaid, Tessera, Rambus and WiLAN comprise the next tier, between $500m and $1b. The remaining 17 companies are what Wall Street calls micro-caps.

They include Vringo and Document Securities Systems, DSS, an anti-fraud and brand protection business with patents and trade secrets which has announced a merger with patent monetization firm, Lexington Technology Group. LTG (which BBA advises) is headed by IP veterans Jeff Ronaldi, who has run successful technology and monetization businesses, and Peter Hardigan, formerly director of investment management at IP Navigation Group and a Principal heading IP transactions at Charles River Associates. Warren Hurwitz, co-founder with Rob Kramer of Allied Security Trust, a successful IP private equity fund which has sold a $46 million portfolio to RPX, recently joined LTG as a director. The merger is set to close late 1Q.

Defensive-minded patent-rich companies, like Microsoft, IBM and Samsung, arguably are also PIPCOs, although their lofty market cap and abundant revenue streams make their shares less dependent on the outcome of IP disputes. The lack of broad ownership of smaller PIPCOs means that they are frequently misunderstood and their shares are sensitive to news, good and bad.

For stoic investors looking to take advantage of still inefficient market for generating a return on infringed patents, PIPCOs may be an option whose time has come.Public IP Companies Illustration source:; Brody Berman Associates.

Bruce Berman
Brody Berman Associates, Inc.
New York

This blog first appeared on IP CloseUp on Febr. 5, 2013 and was published earlier by IPEG in March 2013. It has been (re)published on Feb. 7, 2015


Author: 3 years ago

Technology transfer of new ideas and innovation from universities and research institutes into society is a major source of Europe’s “knowledge economy”. However, EU firms are struggling to better exploit public-funded research (like those from universities) and transform their findings into patents and innovations that generate growth.  Barriers to collaboration between the public and private sectors exist, in particular when it comes to sharing revenues and costs.

European law on how to deal with inventions made by university professors and whether they can be commercialized (and if so, against what conditions) is fragmented. The practices among European universities is diverse and uncoordinated. Would in the light of Europe’s ambition to be the most innovative place by 2020, a European Bayh-Dole Act be a stimulus for innovation and therefore growth of its “knowledge economy”?

The Bayh-Dole Act is a US law dealing with intellectual property arising from US federal government-funded research. Adopted in 1980, Bayh-Dole (named after the two senators that drafted this bill) gave US universities, small businesses and non-profits intellectual property control of their inventions that resulted from such funding.  Faster and stronger technology transfer was a principal argument for Bayh-Dole. Bayh-Dole permits a university, small business, or non-profit institution to get ownership of an invention in preference to the government. The US Bayh/Dole Act resulted in a strong technology transfer profession in the U.S. Such licensing programs now exceed  $1 Billion in annual royalties to universities, promoting research and further innovation. One word of caution: evidence[1] suggests that the Bayh-Dole Act itself has had little impact on the content of academic research, rather the distribution and monetization of it.

One of the aspects that should interest European politicians and universities is that the US Bayh-Dole Act provided a strong political endorsement of the argument that failure to establish patent protection over the results of federally funded university research would limit the commercial exploitation of these results. The Bayh-Dole Act was a powerful answer to a belief by policymakers (based on little or no evidence at the time) that stronger protection for the results of publicly funded R&D would accelerate their commercialization and the realization of these economic benefits by U.S. taxpayers.

In Europe we have none of that. European policy makers have so far limited themselves to subsidizing university research, but failed to make the next move, namely to ensure that knowledge, produced as a result of European tax payers money would be “clawed” back to Europe by means of patenting those results and institutionalizing the monetization practices. In Europe, the division between academia and industry is still long and deep. Historically, any potential industrial applications of scientific discoveries made within universities are still deemed public knowledge and, therefore, not protected by patents. Many European academic researchers are only hesitantly, if at all, interested in the exploitation of their research in the private sector. This view has to change. Not that there are no Bayh-Dole-like laws in Europe[2]. Several countries, among which UK, Germany, Denmark and Belgium have technology transfer legislation supporting university commercialization of publicly funded research. Those countries, though attempting to enact legislation similar in effect to the Bayh-Dole Act, were by far not of the same impact as the US counterpart.

To encourage better and more effective exploitation of university inventions we need a European Bayh-Dole Act.

This article was first published on August 7 2010 on the IPEG blog

[1] see David C. Mowery, Richard R. Nelson, Bhaven N. Sampat, and Arvids A. Ziedonis, The Effects of the Bayh-Dole Act on U.S. University Research and Technology Transfer: An Analysis of Data from Columbia University, the University of California, and Stanford University” (1998).

[2] See for a very informative study on the effects of the US Bayh-Dole Act and how this compares with Europe: Thomas J. Siepmann, “The Global Exportation of the US Bayh-Dole Act”

Author: 3 years ago